Exam 2: Accounting Judgements

An example of the full disclosure principle would be a firm signing a major contract in November to construct custom machinery for a client.Work in the current year is nil,yet the notes to the firm's financial statements discuss the nature and dollar amount of the contract.

The objective of financial reporting is:

Legally,as well as for accounting statement purposes,a corporation is treated as a separate entity apart from its stockholders,whereas a partnership is treated as one entity including the owners.

The measurement conventions of accounting include all of the following except:

Stratford decided in October of the current fiscal year to start a massive advertising campaign to enhance the marketability of its product.In November,the company paid $750,000 for advertising time on a major radio chain to advertise its product during the next 12 months.The chief accountant expensed the $750,000 in the current fiscal year on the basis that "once the money was spent,it could never be recovered from the radio chain". State whether or not you agree with the accounting treatment given to this disbursement and support your opinion with principles discussed in the chapter on the Criteria for Accounting Choices.

The separate entity assumption has more validity for a larger corporation than it would for a sole proprietorship.

Under IFRS 13,Level 3 inputs are deemed to be more reliable than Level 2 inputs.

Information is reliable when it is in agreement with the actual underlying transactions and events,the agreement is capable of independent verification and the information is reasonably free from error and bias.

When assets are acquired,they should be recorded in the accounts in conformity with the:

Under which of the following will revenues and expenses most likely be reported in the period they are earned or incurred?

The sales manager of a firm has the use of a blue company-owned automobile to use to visit potential customers.The sales manager also owns her own identical car except that it is red.The manager paid for the red car with funds earned from her employment as sales manager.The firm will report the cost of the blue auto in its balance sheet,but not the red auto.This is an example of:

The full disclosure principle asserts that the financial reports of a business enterprise should disclose all reliable information relating to its economic affairs.

Accounting transactions must always be realized prior to being recognized.

Fill in the blanks below with the accounting principle,assumption,or related item that BEST completes each sentence. 1.Recognition of revenue at the end of production is an allowable exception to the ______________________ principle. 2.Parenthetical balance sheet disclosure of the inventory method utilised by a particular company is an application of the _______________________ principle. 3.Corporations must prepare accounting reports at least yearly due to the _______________________ assumption. 4.Some costs,which give rise to future benefits cannot be directly associated with the revenues they generate.Such costs are allocated in a ____________________ and ______________________ manner to the periods expected to benefit from the cost. 5._______________________ would allow the expensing of all repair tools when purchased,even though they have an estimated life of 3 years. 6.The ________________________ characteristic requires that the same accounting method be used from one accounting period to the next,unless it becomes evident that an alternative method will bring about a better description of a firm's financial situation. 7._________________________ and _______________________ are the two primary qualities that make accounting information useful for decision making. 8.Information which helps users confirm or correct prior expectations has ________________________. 9.__________________________ enables users to identify the real similarities and differences in economic phenomena because the information has been measured and reported in a similar manner for different enterprises

A firm purchased $40,000 of supplies in its first year of operations but used up only $30,000 of the supplies during the year.Therefore:

The use of fair value rather than historical cost increases both the relevance and verifiability of the financial statements.

The underlying assumptions of accounting include all of the following except:

A firm signs a major contract in December to construct custom machinery for a client.No work is begun the current year,yet the notes to the firm's financial statements discuss the nature and dollar amount of the contract.This is an example of

Information is neutral when it is free from bias that would lead users towards making decisions that are influenced by the way the information is measured or presented.

The separate entity assumption applies only to legally separate entities such as corporations; it does not apply to proprietorships or other unincorporated businesses.